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Indian Passenger-Car Sales Decline 15.8% Y/Y During July, Biggest Drop in Nearly Three Years

Indian passenger-vehicle sales (including utility vehicles and MPVs) declined by 8.9% year-on-year in July, owing to a significant decrease in passenger-car sales, due to rising interest rate and high fuel costs.

Following the latest rate rise, automakers expect a dramatic impact on demand, too strong for countermeasures such as discounts and incentives to have an effect.

Outlook

Based on the market sentiments, local industry association SIAM scaled down its growth expectations for domestic car sales to 10–12% for fiscal year 2011/12 from its earlier estimate of 16–18%.

The Indian passenger-vehicle market slid 15.7% year-on-year (y/y) in July from a year ago, its biggest drop in nearly three years, as rising interest rates on loans and higher fuel costs crimped demand for new vehicles and kept buyers out of showrooms. According to data published by the Society of Indian Automobile Manufacturers (SIAM), total industry sales declined by 2.3% y/y to 247,898 units last month, down from 253,638 units in July 2010. Light-vehicle sales, including passenger cars, utility vehicles (UVs), light commercial vehicles (LCVs), and multi-purpose vehicles (MPVs), decreased by 3.6% y/y to 220,768 units in the month, primarily due to significant decline in sales of passenger cars, but all other vehicle segments increased. Sales of passenger cars totalled 183,657 units in July, versus 201,704 units in July 2010. This was greatly offset by increase in sales of UVs and MPVs by 16.3% y/y and 16.1% y/y to 28,502 units and 21,408 units, respectively. On a year-to-date (YTD) basis, passenger-car sales were up 11.3% y/y at 1,166,298 units, while UV sales increased 10.7% y/y to 199,641 units and MPV sales grew 24.4% y/y to 135,872 units. This leaves the total passenger vehicle segment up 12.3% y/y at 1,501,811 units. Meanwhile, YTD sales of medium and heavy commercial vehicles (MHCVs) totalled 201,421 units last month, up 9.3% y/y.

Maruti Suzuki posted a 26.2% y/y decline in volumes to 66,504 units in July, taking a market share of 36.2% in the passenger vehicle segment, down 8.5% y/y. Its sales volumes were down 5% month-on-month (m/m) from the 70,020 units it sold in June. Hyundai and Tata occupied the next two spots in the passenger vehicle segment, selling 25,642 units (down 11% y/y) and 22,011 units (down 32.6% y/y), respectively. Hyundai and Tata achieved market shares of 14% and 12%, respectively, in the passenger vehicle segment during the month. The combined market share of the top three automakers stood at 62.2% in the passenger vehicle segment during July, compared with 70.3% in June. The performances of the top three automakers in India continue to be affected by strong new competition in the volume small-car segment from global automakers such as Ford and Volkswagen (VW). With the double-digit decline in passenger car sales, the combined share of the top three automakers plunged 13 percentage points y/y. Meanwhile, Ford's sales stood at 7,504 units, down 14.1% y/y, while General Motors (GM) sold 9,465 units last month, up 33.9% y/y. Mahindra & Mahindra (M&M) saw its sales in the month increase 54.6% y/y to 19,825 units.

The CV segment, which enjoyed some recovery last year, saw growth momentum stabilise during July. Sales in this category grew considerably by 23.7% y/y to 64,241 units. LCV sales were the main area of support for the CV segment during July as they continued to surge, by 36% y/y to 37,111 units. Meanwhile, MHCV sales also saw sales growth of 10.1%. On a YTD basis, LCV volumes were up 23.4% y/y at 236,843 units. The total CV segment was up by 15% y/y in the YTD period to 438,264 units.

Production and Exports Continue to Grow

Domestic vehicle production meanwhile continued to grow in July: overall vehicle output increased 5.9% y/y to 329,777 units during the month. Production of passenger vehicles increased 2% y/y to 255,658 units, while CV output rose by a further 21% y/y to 74,119 units. CV production in the month included LCV output of 44,626 units (up 34% y/y) and M&HCV output of 29,493 units (up 5% y/y). The YTD production figure for passenger vehicles totalled 1,869,285 units, up 15.9% y/y, while that of CVs reached 498,278 units, up 16.9% y/y.

Vehicle exports of grew 121% y/y to 89,210 units in July, primarily driven by strong growth of 41% (48,841 units) reported by the passenger vehicle segment. It was helped by the continued significant growth registered by CV exports in the month, which rose 31% y/y to 7,499 units. The YTD export figure for passenger vehicles totalled 298,584 units, up 15.4% y/y, while on YTD basis, CV exports grew 40.1% y/y to 47,905 units.

Outlook and Implications

The Indian automotive market has been growing at a consistent and fairly extreme rate for the past few years, but as macroeconomic conditions deteriorate, this sales growth has begun to decline since the beginning of this fiscal year (FY). Macroeconomic factors such as increasing diesel and gasoline (petrol) prices and a recent interest-rate rise by the Reserve Bank of India (RBI) have resulted in weak consumer sentiment during the past few months. The RBI recently increased its policy rate by 50 basis points in a bid to rein in high inflation, making corporate and individual loans more expensive. Carmakers operating in India believe that the impact of this on demand will be too strong for counter-measures such as discounts and incentives to have an effect (see India: 27 July 2011: Reserve Bank of India Raises Policy Rate by 50 Basis Points, Automotive Companies Expect Severe Decline in Demand).

Following the latest rate rise, automakers expects a dramatic impact on car sales. For instance, Maruti Suzuki expects its percentage sales growth for the current FY to be in the low single digits owing to rising interest rates and fuel prices. Based on the market sentiments, SIAM scaled down its growth expectations for domestic car sales to 10–12% for fiscal year 2011/12 from its earlier estimate of 16–18% (see India: 5 August 2011: Maruti Suzuki Expects Single-Digit Percentage Sales Growth This FY, Plans to Reduce Diesel Engine Exports to Hungary). IHS Automotive's current light vehicle forecast stands at 3.025 million units, around an 11.5% rise on 2010, as the festival season offers are expected to reawaken the market demand in the later months of 2011. However, similar policy rate rises are expected in the near term in a bid to curb inflation, and these still represent downside risk to growth forecasts.

Key volume automakers such as Maruti Suzuki, Hyundai India, and Tata Motors have had their share of the passenger car segment in India eroded in recent times, despite continued strong volume growth in the country. This is due to the increased competition in the market, with new products from global automakers such as GM, Ford, and the Volkswagen (VW) Group resulting in a shift in market share. This trend is expected to continue in the medium term. Upcoming vehicle launches will further boost competition in the Indian automotive market and established players are looking to regain lost ground.

Despite poor consumer sentiment, automakers remain bullish about the long-term prospects for the Indian market, with the majority of them targeting significant investments and new product launches in the near future. Ford last month confirmed that it is setting up a second plant in India, in the western state of Gujarat, with investment of about USD1 billion, in a bid to ramp up production to exploit the country's burgeoning car market (see India: 28 July 2011: Ford India Confirms USD1-Bil. Car Assembly, Engine Factory in Gujarat, Plans to Begin Production by 2014). Toyota recently announced investment of nearly INR16.5 billion in its Indian operations to increase its total production capacity by 100,000 units and boost the localisation of components by 2014 (see India: 28 July 2011: Toyota India to Invest INR16.5 Bil. in Expansion, Localisation by 2014). Meanwhile, major luxury carmakers such as BMW, Mercedes, Aston Martin, and Ferrari are launching new models in India and expanding their dealership networks in response to this trend (see India: 7 June 2011: BMW to Triple Number of Dealers in India by 2015, Plans to Launch X3 by End-2011 and India: 23 May 2011: Aston Martin India Aims to Sell 100 Cars by End-2012).